Category: HR KPIs.

The termination rate of a company is the percentage of people that decide (or are forced) to leave the company for various reasons. The voluntary rate involves the people that decided of their own free will that they want to leave the business.

An involuntary termination, on the other hand, happens on other grounds – which are independent of their own free will.

Defining Involuntary Termination Rate

Involuntary termination rate is a metric that measures the percentage of people who have been laid off – and forced to leave the company. There may be many reasons for this – such as improper conduct, budget costs – or that the skill of the employee is no longer required.

Every employer has the right to fire a certain employee in the event that they do not respect the terms of their contract. For bigger companies, this can happen more often than not – which is why business owners need to have the involuntary termination rate in mind.

This ratio will reflect precisely the extent to which the company tends to terminate contracts involuntarily from the employee.

These involuntary terminations can have a very negative effect on the business. Indeed, if the termination was caused by a layoff, then it’s not likely that the company will suffer from it. However, if the reason behind this is generally misconduct or poor performance, replacing that individual can end up being very costly and time-consuming.

Determining the Involuntary Termination Rate

The involuntary termination rate is very simple to determine – especially if you have the list of people coming and going from your business. If there is an underlying cause that is strictly related to your business, you may want to find it out.

First things first, you may want to find out the number of people that have been dismissed from your business – and whose reasons were involuntary of their reasons. For instance, let us say 100 people delivered poor performance and were fired from the company over the past year.

Now that you know that number, look up how many people you hired over this same past year. For example, let’s say that 1,000 people found employment in your company this year. The formula for determining the involuntary termination rate is as follows: Involuntary Termination Rate = Number of People That Have Been Hired Over the Past Year / Number of People that Have Been Involuntarily Terminated. Therefore, considering the examples above, the calculations would be 1000/100 – which is 10%.

Final Thoughts

Without further ado, the involuntary termination rate tells you nothing about why certain contracts were terminated – or what you could do to prevent a similar situation. This, you will have to analyze by yourself.

It will, however, tell you if there’s an issue that requires your attention. For example, if you see that the percentage is too high, you may have to change your requirements when hiring people – or make some changes in the environment. More often than not, layoffs are caused by businesses that do not have the proper equipment for superior performance.

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